For tax year 2015, Social Security taxes are levied at a rate of 6.2% (for employed persons) on up to $118,500 of wages.

Suppose I started a new job on Jan 1, 2015, earning a nice, round annual salary of $240,000 (monthly, $20,000) and worked there for all of 2015. How would Social Security tax be levied? Would I pay 6.2% × $20,000 = $1240 on my first five monthly paychecks, slightly less on my sixth, and none for the rest of the year? Or would I pay 6.2% × $118,500 / 12 = $612.25 on all twelve of my paychecks for the year? (Or is it employer-dependent?)

2 Answers
2

Every company you work for will withhold from each paycheck 6.2% of your wages that are applicable to social security. Some items reduce your gross pay before social security tax is calculated.

When your pay with that employer reaches the annual limit, the 6.2 percent levy ends. That means that for some workers the take home pay goes up for the paychecks at the end of the year.

But if you work for multiple companies at the same time, or if you change companies during the year excess amount could be withheld. The companies don't know about what is going on with your total wages, so they have to collect the tax until you reach the limit with them.

When you file your taxes the excess collected will be refunded, there is a line on the tax form for this.

The first part of this is definitely correct. This part was new to me: "When you file your taxes the excess collected will be refunded, there is a line on the tax form for this." Could you say more specifically where this is? Would be good to know! Thanks.
– user32479Nov 9 '15 at 15:08

Yep, that's how it's worked for every company I've worked for, both withholding the full 6.2% at the start of the year and then stopping withholding after they've withheld the max, and overpaying then claiming the overpayment on my taxes when I worked for more than one company in a year.
– blmNov 9 '15 at 17:45

The info on the comments above, if correct, should be added to the answer.
– MindwinNov 9 '15 at 19:27

4

I write payroll software and this answer is 100% correct. You'll get the excess paid when you file your return. Generally, there's no way payroll processors or your employer to fix this. Even if we could we'd have to take your word for it that you've had this money withheld properly and that's not gonna happen.
– Clinton PierceNov 9 '15 at 21:17

As @mhoran_psprep described, employers will withhold 6.2% of wages until the annual wage limit is reached, then additional wages will not have Social Security Tax withheld. As far as I know, the tax regulations don't allow them to withhold it by "averaging" it out over the year as you have described.

But, even if they could, it's not likely that they would, because there is no guarantee that you will continue at the same wage for each and every month.

For example, using your figure of $20,000.00 per month...

Suppose that after 5 months, you left the company for another job, retired, or took an unpaid leave for the remainder of the year. Again using your figures, they would have withheld $612.25 * 5 = $3,061.25. But for those 5 months, you were paid $20,000.00 * 5 = $100,000.00. So, for your $100,000 in wages, they should have withheld $6,200.00 but they only withheld $3,061.25, leaving a shortage of $3,138.75.

After that (still using the $20,000.000 monthly wages figure), for every additional month that you work for that company (beyond the 5 in this example), the shortage would be reduced, but even at 10 months (with 2 months off), the shortage would still be $1224.50. Unless they could recover this shortage from you, the company would be liable for paying it (plus perhaps some interest and penalty).

The only way the monthly withholding would work out to $612.25 * 12, is if your monthly wages were (legitimately) $9,875.00, and then in December, you received an additional bonus of $121,500.00 (assuming there was no fraud involved).

This is a very good point that I hadn't thought about - unlike with regular income tax, there's an employer component to FICA, so of course they have charge the full tax on each dollar as it's disbursed to the employee.
– senshinNov 10 '15 at 20:19